My Bank Doesn’t Understand my Numbers. But isn’t Accounting Just Arithmetic?

Posted on October 2, 2019 by Jeffrey Mann

This is the fifth in a series of conversations between a financial consultant and trusted advisor named Jay and his clients and friends. The conversations deal with the misconceptions and misunderstandings between business owners and their bankers. I hope you find it helpful and entertaining.

Jay sat in his office reviewing his weekly calendar when his phone rang. He hit the answer button and greeted the caller. “This is Jay”, he said.

“Hi Jay, Brian McPherson of Regional Community Bank.”

Aye laddie,” Jay responded. Brian had taken a great interest in his Scottish heritage and Jay’s attempt at a Scottish accent always brought a chuckle.

Brian laughed. “Jay, you’re still too English to do a proper brogue. Anyway, I have a question.” Brian continued.

“Shoot.” Jay answered.

“Do you serve clients outside the immediate metro area?” Brian inquired.

“How far outside?” Jay answered.

“New Hanover.” Brian replied. New Hanover was a small town in a rural county north of the city where they both lived.

“New Hanover’s not a problem.” Jay responded. “I’ve had several clients that far away and even a little farther.”

“Great.” Brian said in a relieved tone. “You’re probably going to be getting a call in the next few days. We have a client up in New Hanover that I think you might be able to help.”

“Well thank you Brian. I appreciate the lead.” Jay replied gratefully, “Tell me more.”

About the Company

“The company is Sinclair Farm Repair Services. It’s owned by Phil and Bonnie Sinclair. Phil and Bonnie are New Hanover natives and they kind of fell into this business. They own a farm, about 300 acres. Like a lot of farm families, both of them worked. Bonnie taught math at the local parochial school and Phil was the lead mechanic at Fillmore Farm Equipment’s branch in New Hanover.”

“Didn’t Fillmore close that branch awhile back?” Jay asked.

“They did, about six years ago.” Brian replied. “And that was how the business started. When the New Hanover branch closed, they transferred Phil to their branch in Rucker.”

“That’s an hour drive, easy.” Jay exclaimed.

“And that was only part of the problem.” Brian continued. “When Fillmore closed the New Hanover branch, it left the farmers in the area with nobody local to do equipment repairs. The nearest repair shop was over 45 minutes away.”

“Let me guess,” Jay broke in. “Without a local repair shop, the farmers started calling Phil to see if he could fix their equipment on the side.”

“Bingo,” Brian said. “Within a few months Phil was spending week-ends and evenings fixing his friends’ equipment. After about two years, the volume got so big that Phil quit his Fillmore job and opened the business. He has a machine shop and office in his barn. He also has some trucks they use to do on-site repairs.”

“That’s how it often happens.” Jay replied. “Is the business growing?”

“Fast, maybe too fast.” Brian answered. “It’s gotten big enough that Bonnie quit her job to do the administration and accounting. Now they’ve brought on their two sons to work in the business and Phil brings in retired mechanics from around town to fill in any holes.”

“So, why do you think they might need some help?” Jay inquired.

“Well, about three years ago we started working with them. We offered them a small, $15K line of credit.” Brian explained. “They tapped that out immediately, but we didn’t hear from them much until a month or so ago. That’s when Bonnie called Sara, our commercial banker in New Hanover to talk about maybe putting some new financing in place.”

Jay mused, “Let me guess, they used the credit line to buy hard assets. Right?”

“You got it. A used pick-up if I remember correctly.” Brian responded. He went on. “Sara and I called on them last week and we saw some disconnects. They seemed crazy busy but according to Bonnie, they never have enough cash. They also didn’t have very good answers to some basic questions about their operations. We had them give us their financial information and frankly our credit team couldn’t make heads or tails of it. It’s all cash basis and we weren’t really sure if they had good separation between the farming operation and the business.”

“Do you think the accounting has gotten away from Bonnie?” Jay asked.

“It probably has.” Brian answered.  “Phil was very stoic through the conversation, but I could see that Bonnie is really concerned about the business and seemed frustrated that they don’t have a handle on what’s going on. The heck of it is, I think there’s a real business there and I think they do need growth capital, but no bank can lend to them based on the information they’ve given us so far.”

“Sounds like they’ve outgrown themselves.” Jay speculated. “Have them give me a call.”

“I will.” Brian said. “You probably need to know one more thing. Phil was pretty crusty, surly even and openly skeptical of everything we had to say. Sara says that around town everyone says he has a heart of gold under the crust. But he’ll be a challenge.”

“Thanks for the warning.” Jay answered. “And thanks again for the lead.”

So Why Are You Here?

A week later, Jay sat in the makeshift office of Sinclair Farm Repair Services. As Brian had said, the office was in the corner of the barn on the Sinclair’s property, about a mile from New Hanover. A few hours after Jay’s conversation with Brian, Bonnie had called. In their conversation she had confirmed most of what Brian had told him. Now he sat on a folding chair at a round table with Bonnie and Phil Sinclair. Phil had come in covered with grease stains as he’d been working on an engine overhaul in the shop that took up the rest of the barn’s main floor. Now he sat frowning with his arms crossed looking at Jay with a clear indication that he’d rather be back out in the shop.

“I hope you’re not put off by Phil’s clothes.” Bonnie opened. “He promised my brother-in-law that he’d have this engine fixed by the end of the day.”

“Not at all,” Jay replied. “I never want to get in the way of a business opportunity.”

“So, why are you here?” asked Phil coldly. “Why does the bank think we need to meet?”

“Well.” Jay responded. “I’m not sure. I need to know more about your business. I do know that the bank believes that your business is growing, that you might need some additional capital to continue growing and that they can’t help you right now because they can’t properly evaluate your company based on the information you’ve given them.”

“That’s bull,” Phil snapped back. “We gave them our tax returns and the company financial statements. Our tax guy didn’t have any trouble with them.”

“The information you sent them was fine for taxes.” Jay answered calmly. “But the bank needs to know different things than the tax man does, and your statements don’t give them that information.”

Bonnie’s eyes narrowed. “What information did we leave out?” She asked. Phil cleared his throat to speak but Bonnie shot him a glance and he let it pass.

Before Jay could respond, Bonnie answered her own question. “You must be talking about cash basis accounting instead of accrual basis” Bonnie said.  I know there’s a difference but when I change the setting from “cash basis” to “accrual basis” on our software I get the same results. Shouldn’t they be different?”

“Before I answer, let me ask you a couple questions.” Jay replied. “Do you book sales in your software when you send a customer an invoice or when the customer pays you? Second, when you buy inventory like repair parts, do you book the transaction when you receive the goods or when you pay for them?”

“I book both at the time of payment.” Bonnie said. “Is that wrong?”

“For taxes, no, for everything else, you would be better off booking those transactions the other way.” Jay said. “Another question, how do you tell how much your customers owe you and how much you owe your vendors?”

“I list customer invoices on a spreadsheet and take them off the list when we get paid.” Bonnie answered. “I file vendor invoices by the vendor and then run a tape for each vendor when I pay the bills. I know there’s a way to make the software keep track of receivables and payables, but I haven’t learned how to do it yet.”

“You might want to,” Jay replied. “It’s more accurate, gives you better information, and will provide some of the “missing” numbers the bank wants to see.”

Accounting’s Not Complicated

“Wait a minute,” Phil snapped. “our numbers are fine. Bonnie’s a math teacher for gosh sakes. She’s plenty smart enough to do our books. Anyway, accounting’s just arithmetic. It’s not complicated.”

“Kind of like equipment repair,” Jay shot back. “You take out a bad part, put in a good part and there you go.”

“It’s a lot more complicated than that and you know it.” Phil exclaimed, voice rising. “I have to know how all these machines work. I need to keep up with all the changes the manufacturers put through to stay authorized. There’s a lot to it.”

Jay sat silently and eyed Phil with a slightly bemused look. After an uncomfortable few moments Bonnie spoke up. “Phillip, I swear. Do you listen to yourself? Jay how many years were you in college to be an accountant and don’t you have continuing ed to keep your certification?”

“I got my accounting degree in four years.” Jay said matter of factly. “And my continuing ed requirement averages about 40 hours a year.”

Mama Ain’t Happy

Bonnie leaned back in her chair, looked at the ceiling for a moment and then said in a somber voice, “There’s so much I don’t know, and I’m afraid because I feel like we should know more about the business than we do. I think that’s feeding our cash problems. We don’t know what makes money in the business and what doesn’t. We lose track of things. One of our customers owed us over $75,000 and we just let it go for too long. That kind of thing.”

“That’s the thing about your accounting process.” Jay responded. “If its only getting you numbers for your tax return, it’s not doing enough. Your accounting should give you information that helps you run the business and make good decisions. And it’s not that much harder to do things in a way that will give you the info you need. In fact, it will save time because you won’t need the spreadsheet or vendor tapes.”

Phil broke in, “We know about our business, and we don’t have cash problems. We pay our vendors.”

“We pay our vendors because you don’t take a salary half the time.” Bonnie said, her voice rising in volume and pitch.  “And I haven’t taken my salary once this year. I’m raiding our savings to buy groceries.”

Phil’s jaw dropped. He stared at Bonnie for a moment and said, “I didn’t know you hadn’t taken your salary. You never told me.”

Bonnie shook her head and then the words came out in a torrent. “You have so much going on. I didn’t want to put another burden on you. That’s why I quit teaching, I wanted to help and to take a worry off your plate. But I’m overwhelmed and I’m scared to death that we could lose the business if we can’t get our cash under control. And that’s not all.”

Bonnie set her jaw and continued. “Right now. I’m not doing anything well. If we didn’t have a house cleaner every other week the place would be a dump. I’m so buried here that I hardly ever cook for you and the boys anymore. We order out for junk food most of the time which isn’t good for any of us. I’ve become a crappy wife and mother so I can spend all my time being a crappy accountant. And one more thing.”

Bonnie reset her jaw, Jay thought to keep from crying. She continued, “I’m also a crappy sister and daughter. I mean, the doctor said Mama’s stroke was mild, but she’s not right and I’ve stuck my sister and brother with all of the care responsibilities so I can do a crappy job accounting for the business.”

Bonnie was finished speaking for the moment. She sat back in her chair, jaw still clenched and a look of despair in her eyes. Phil sat across from her dumbstruck. Finally, in desperation he looked at Jay, perhaps hoping for some support.

Jay said nothing for a moment. Then in a measured but friendly tone he said. “Phil, my wife comes from the South. Down home where she’s from they have a saying, “If Mama ain’t happy, ain’t nobody happy.”” Then tilting his head toward Bonnie, he continued, “Mama ain’t happy.”

Can You Help?

Phil slowly nodded his head and asked, “Can you help us?”

Jay answered, “I don’t know for sure. But I do know how to find out. Before I work with a client, I do an analysis of the business. It requires that I interview you to learn about the business. I’d also need to interview Bonnie to understand the ins and outs of your accounting. I’d also need two- or three-years’ worth of financial statements to review. After I do the analysis, I’ll go over it with you and we can determine what you need and if I can help. The best part, I don’t charge for the analysis. You interested?”

“I think so.” Phil said. “When you interview me, can you come early in the morning? 7:30 or so. Once I hit the shop, I’m hard to pin down.”

“Sure,” Jay replied with a smile. “I’m an early riser. Next Friday?”

For the first time, Phil gave Jay a little smile and nodded.

Bonnie chimed in, “Phil, you know what would make me happy. I’d like to go up to your cousin’s cottage on Big Pike Lake for a weekend like we used to when we were first married. You can fish and I can sit on the porch and read one of my novels and we can relax. Those weekends would keep me going for months. I haven’t suggested it because I’m afraid to be away from the business even for a day because of the cash problems.”

“We’ll make that a goal.” Phil said, smiling. “And Jay, I’ll see you next Friday at 7:30.”


 For business owners:

  • Banks can’t help you without the right information and they need different information than your tax preparer. It will help if you talk with your banker to understand those needs.
  • Your accounting system should be a source of operating information in addition to straight financial reporting and it is important to understand how to use the functionality that can help your business.
  • Do not buy long-term assets with your line of credit. Learn to match your debt maturities to the life of the assets you’re buying with the money.

 For bankers:

  • Be sure to remember that your client may not understand banking practices and the information you need to make proper lending decisions.
  • As clients often don’t ask for help before problems escalate, finding ways to deliver information in digestible bites can reap mutual benefit.
  • You can create opportunities for the bank by introducing clients with solid businesses but weak financial reporting to professionals who can help them improve their accounting processes.

Jeff Mann is a Partner and trusted advisor with B2B CFO® serving business owners in Northeastern Indiana and Northwestern Ohio who want to increase cash and company value. Contact him at, or find a B2B CFO® Partner in your area at

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